Ads from providers like Google AdMob and AppLovin are blocked. Apps could bundle their own DNS or DoH resolver or use hardcoded static IP addresses but in my experience most do not.

Youtube ads do not get blocked by DNS adblock because Youtube ads are served from the same domains as the content and thus DNS blocking would be counterproductive. I don't think it has anything to do with respecting DNS.

I don't have the Youtube app installed to test but the Internet suggests that at least in 2023 it was very possible to block the Youtube android app (content and all) via DNS, which hints it does not bypass system DNS. [1]

[1] https://superuser.com/questions/713289/blocking-youtube-andr...